Job gains blow past expectations with biggest increase in a year
But data unlikely to sway central bank into pause on rate hikes, economists say
Canada's job gains beat expectations but hiring failed to keep up with a rising population and wage growth cooled, keeping the door open for the central bank to cut rates as early as next month.
The country added 90,000 jobs in April, driven by part-time positions, while the unemployment rate held steady at 6.1 per cent, Statistics Canada reported Friday. The figures beat expectations for a gain of 20,000 positions and a jobless rate of 6.2 per cent, according to the median estimate in a Bloomberg survey of economists.
The loonie jumped against the greenback, though it later pared some of those gains, while the yield on the benchmark Canada two-year bond rose, up about eight basis points on the day at 4.286 per cent as of 11:15 a.m. Traders pared odds of a June cutback to a coin toss, from two-thirds prior to the release.
But against the backdrop of rapid immigration-fuelled population growth, job creation during the month fell short of 112,000 new working-age entrants — that's been a persistent trend over the past year.
Compensation is also rising at the weakest pace in 10 months. Wage growth for permanent employees decelerated to 4.8 per cent, down from five per cent a month earlier.
Overall, despite an unexpectedly strong rebound from March job losses, the broader trend still shows signs of a softening labour market that the Bank of Canada views as favourable in easing wage growth and underlying inflation. That leaves policymakers focusing on the upcoming April inflation report, due May 21, as they mull a pivot to easier policy.
The jobs data is unlikely to sway the central bank into a pause, Charles St-arnaud, chief economist at the Alberta Central association of credit unions, said in an email.
“The BOC remain focused mostly on inflation. The breadth of inflation is gradually easing and returning to the historical average, while core inflation is returning below three per cent,” he said. “With this in mind, we believe the BOC will cut at the June meeting, unless we get a positive surprise when inflation is released.”
Friday 's data was better than expected but it's important to look at the broader trend, Andrew Grantham, an economist at Canadian Imperial Bank of Commerce, said in a report to investors.
“The underlying trend remains one of loosening conditions with the unemployment rate still higher than it was at the start of the year and wage pressures beginning to ease,” he said.
Royce Mendes, managing director of macro strategy for Desjardins Securities, said in a report to investors that while the headline number will garner most of the attention, “the details of this report suggest that the labour market is actually exhibiting some evidence of slack.”
However, Stephen Brown of Capital Economics said the surge in employment in April shows that job losses in March were just a blip. “The Bank of Canada is now more likely to wait until the July meeting to cut interest rates, rather than moving in June as we expected,” he said.
The data on Friday comes from Statistics Canada's labour force survey, which polls about 56,000 households monthly. It has shown far stronger job growth than the payroll survey, which is a census of all paid workers in Canada and based on submissions by businesses for tax purposes. In the labour force survey, the two top industries for job gains — professional, scientific, and technical services, as well as food and accommodation — have been highly volatile in recent months.
This is the only jobs report before the Bank of Canada's next rate decision on June 5. The majority of economists in a Bloomberg survey expect governor Tiff Macklem and his officials to cut the policy rate by 25 basis points to 4.75 per cent at that meeting, marking the start of an easing cycle.
During their April deliberations, which resulted in the bank holding borrowing costs steady for a sixth straight meeting, policymakers assessed the March report as “consistent” with the recent trend: job gains continued to be lower than working-age population growth and wage increases had begun to show signs of easing.
We believe the BOC will cut at the June meeting, unless we get a positive surprise when inflation is released.